What Retailers are Saying

During the November round of quarterly reports, analysts pressed retailers about how they are responding to higher raw material, labor and freight costs. Here's what they had to say.

Bon-Ton StoresBud Bergren, ceo"There will be some price increases, but they will be minimal ... We see a small impact in the low single digits for 2011."

GordmansJeff Gordman, president and ceo "I know that there has been much discussion on Wall Street with respect to cost pressures on merchandise inventories and a potentially negative impact on gross margins, particularly as it related to merchandise sourced from China. "It is our belief that retail prices for the industry, overall, has and will increase commensurately, visà- vis cost increases. "Fortunately for us, because we establish our selling price relative to that of our competition, we anticipate being able to preserve margins while hopefully experiencing incremental traffic due to our value-oriented positioning. "We also think that our merchandise procurement strategy, which is based on the fact that we don't engage in the practice of seeking mark down, advertising and other allowances from our vendor partners at the end of the season, works to our advantage, especially in this type of macroeconomic environment. "We've been able to enjoy improved access to merchandise across all of our major categories."

JCPenneyMike Ullman, chairman and ceo"If cotton goes up another 40% or 50% or wherever it lands, there will be an impact on pricing, and it is important for us to have a competitive advantage... Some manufacturers are not even taking orders. That would imply [this will become] a much bigger problem in the second half." He added that JCP is "navigating" the problem with its suppliers, who he noted "may be having more difficulty" with cotton price increases than retailers currently. But JCP's ultimate goal is to "shield" shoppers from price increases as much as possible, he concluded.

Kohl'sKevin Mansell, chairman, president and ceoKohl's team "has found ways to mitigate" the problem via several efforts, such as "doing things like reverse auctions, and we're expanding it. They are an aggressive way to get these costs to the lowest level," he said. Kohl's is also "holding on to raw materials as long as we can" as well as "continuing to consolidate our vendor structure overseas. We have a very concentrated supplier base as it is," he continued. "We are employing all things we know how to do to mitigate this ultimately for our customer. We believe we still have a consumer who is buying cautiously, so they are less likely to pay higher prices. We will go out of our way so the customer doesn't have to see the impact of those rising costs."

Macy's Inc.Karen Hoguet, cfo"This is obviously a question that many of you have been calling about, and clearly there are pressures with the sourcing costs, particularly for the back-half of 2011. And one of the things that you need to keep in mind is that we, both at Macy's and at Bloomingdale's, have the benefit of being more of a fashion retailer and having a higher fashion content in our merchandise, which means that the input costs represents a lower percent of cost of sales, and also it gives us more flexibility in terms of the production, locale, and also the materials we're using. "So frankly, we are in a relatively better position than many of our competitors. "But this is where our increased collaboration with our vendors is going to pay off - both in addressing the sourcing challenges and working together to minimize those. And also, the collaborations are giving us opportunity to reduce other costs of doing business together, which will help us to offset some or all of the increases in the costs of goods. "I should also add that as you think about our private brands, while we're on the subject, we have a terrific sourcing organization with very strong relationships with our manufacturing partners. This, too, will help us minimize any impact we're seeing."

TargetKathryn Tesija, evp merchandising"Cotton prices are up considerably from last year, as are synthetic materials. Apparel and soft home are where we are experiencing these cost increases. "Cotton is up about 80% and synthetics up about 50%. These are some pretty hefty cost increases. I would say that translates into garments - and there's a lot we can do to mitigate that. Different efficiencies, how we cut the fabric, how we produce it. "We're working to design the best apparel we can but mindful of these costs. We do think some [costs] will get passed on in higher retails, but we don't want to get to the point where we design apparel that isn't appealing."

TJXCarol Meyerwitz, president and ceoTJX "is moving from a slightly down ticket to a slightly flat to up ticket. We take the inflation piece as a positive move for our business. We just need to make sure we are competitively price to what's out there, and we will be. "We try to keep a distance between ourselves and department stores. Average ticket going up is certainly a benefit to our comp and our average ticket."

Stein Mart Inc.David Stovall Jr., president and ceo"We are seeing some price increases, primarily affecting the second quarter of 2011, and we're looking for ways to mitigate that impact, including working with our vendors on alternative fabrics and different sourcing locations. "But our driver on pricing will continue to be delivering great value to our customers. And so, that will be the overriding decision point that we will make going forward."

Williams-SonomaLaura Alber, president and ceo"We have seen increasing pressure on costs, particularly this last month, so it's raw materials as you all know and I'm sure are aware of the cotton prices and then also labor rates in Asia. "The good news is we've been very proactive in cost containment efforts and are still in the early implementation stages of some of these efforts. I mentioned them earlier, but I'll just bring them back up again. So, both from a network design perspective also containerization and packaging, reengineering. So, yes, we see the pressure, obviously, and we're building strategies to combat it and to continue to improve our profitability."